The Foxhole

A landmark settlement is meant to punish Meta (META). If the 1998 tobacco deal is any guide, it might protect it.

🚬 Big tobacco: Since its 1998 settlement, Altria has returned over 12,000% with dividends.
⚖️ Social Narrative: Does Meta's cash machine hold as regulators push harder.

This week Meta (META) agreed to pay about US$18 billion over ten years to settle claims from 29 states that it designed Facebook and Instagram to hook teens. It admitted no wrongdoing and denies the claims.

In 1998, the tobacco industry signed the largest settlement in US history and paid states for decades. Yet it didn't break the leaders, it entrenched them. States became financially tied to the industry's survival, and the sheer cost of settling became a wall new rivals couldn't climb. The punishment became a moat. None of that lessens the human stakes here. But it seems a landmark crackdown on a dominant company can end up shielding it.

Did the states punish Meta, or create a wall its rivals can't climb?

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mitchell_lawler

22h

Nvidia's (NVDA) record profit had a US$7.8 billion catch. That chunk came from betting on its own customers, not from selling its chips.

🎙️ The tell: "My only regret is I didn't invest more and sooner."
🚀 Where the money flows: The high-growth tech and AI names investors are circling.

Nvidia (NVDA) just posted the biggest quarterly profit in its history, US$59.7 billion. But US$7.8 billion of it didn't come from selling a single chip. It came from gains on Nvidia's investments in companies like OpenAI and SpaceX. Real gains under GAAP, but paper ones that rise and fall with AI valuations. And it's not new, last quarter the figure was US$15.9 billion.

Nvidia increasingly invests in the very customers who then buy its chips, so when their valuations climb, it books a profit. Part of the "record" is a scoreboard of Nvidia's the boom it has helped fuel. The core business is firing on all cylinders, make no mistake, but a loop runs both ways. If AI valuations take some heat, those same gains could start to sting.

How long can the hyperscalers keep funding Nvidia's record?

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mitchell_lawler

Is Nvidia actually expensive at 32 times earnings? I think that number can melt faster than people realise.

📊 Cheap in disguise?: The most-followed community Narrative has it at 24% undervalued.
📈 Do the math: What analysts expect Nvidia's future earnings to do.
🤖 Beyond the chips: Why Nvidia is pushing into robotics and physical AI.

I think the current calls around Nvidia being overvalued misses the math. Today it's expected to roughly double its earnings per share from a year ago. If the AI data center buildout keeps compounding and the share price stands still, that 32 times could fall toward 13 in a few years.

Of course, that whole case rests on one word: if. Which is what makes tonight one of the four hold-your-breath moments we now get with Nvidia every year, a glimpse of whether the buildout has enough behind it to keep going.

What part of today's Nvidia result deserves the most scrutiny?

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mitchell_lawler

Druckenmiller says cheap money's days are numbered. Boring, self-funding companies could be the opportunity.

📉 Treasury tiff: Druckenmiller warns the government can't hold bond yields down forever.
💎 Overlooked strength: Undervalued companies with strong balance sheets.
🔎 Growth and financial resilience: HedgeY explains how Arm could still be good value.

In a Wall Street Journal op-ed, Stanley Druckenmiller warned the Treasury that suppressing long-term bond yields is a mistake, because governments that fight the fundamentals always lose. Cheap money, he argues, is on borrowed time.

If Druckenmiller is right, I think there is an opportunity in some unloved parts of the market. The rally chased growth-at-any-cost names that lean on cheap money, while strong companies that fund themselves have been overlooked and left cheap. If the real cost of money returns, those are the ones that go on offense, investing and taking share while others retrench.

Which financially rock-solid company do you think has been overlooked in this rally?

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